Report: Kroger will withstand price wars better than any other grocer
- Kroger will withstand price wars in the grocery industry better than any other retailer, mainly due to its scale, according to investors service Moody’s. The firm estimates Kroger accounts for $118 billion of the $1 trillion U.S. food market.
- Moody’s also cited Kroger’s sophisticated data usage, its geographically diverse presence, and a private label selection that accounts for 26% of company sales and growing as advantages.
- After a weak year that saw its stock price plummet, Kroger should see stronger results over the next 12 to 18 months, according to Moody’s. The firm believes Kroger’s recently announced Restock plan will improve sales, and that the potential sale of its convenience store unit could significantly reduce the company’s debt.
After a year that’s produced one hit after another for Kroger, this report comes as a bit of welcome news for the beleaguered retailer.
Unprecedented industry competition and disruption have put pricing pressure on the grocer and forced it to retool its market strategy. Restock Kroger, the plan announced by the company late last month, seeks to leverage the company’s data prowess to offer more personalized shopping experiences and ultimately increase sales momentum across its stores. Restock also aims to increase Kroger’s e-commerce investments, and to expand Kroger’s presence in foodservice and other revenue areas outside of grocery.
The plan builds on Kroger’s core strengths and initiatives that are already in progress, disappointing some who have advocated an acquisition or another big play from the company. Moody’s, though, believes Restock should help Kroger grow same-store sales and improve its credit metrics. Its diverse banner footprint, meanwhile, along with its investments in promising channels like private label, should equip it to battle continued industry pressure.
“It has a diversified range of stores, strong private label penetration, geographic reach and a robust balance sheet, which will buttress it during a period of escalating price wars in the food patch," Mickey Chadha, Moody’s vice president, noted in the release.
Worth noting is the fact that Moody’s isn’t saying Kroger will thrive, but rather that it will survive. In a way, this is disappointing for a grocer that’s had such a strong financial performance over the past several years. But it’s a reflection of the current grocery climate, in which new models are ascendant and traditional ones are either treading water or drowning.
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